07 June 2019

The benefits of a global perspective for Canadian tech

While it enjoys success in North America, our tech sector is seeking new growth opportunities farther afield

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When FreshBooks is thinking about growing, it’s natural for this Canadian accounting technology company to look first to Canada’s closest trading partners, the United States and Mexico. But with the changing trade dynamics in North America, it’s becoming a priority to think more globally.

“Right now most of our customers are in the U.S. ─ about three quarters of our business is there. But we can operate anywhere,” says Levi Cooperman, FreshBooks’ co-founder and vice president, operations.

With the new, post-NAFTA North American trade agreement, he has thought about expanding in Mexico. But Mexico’s new government, elected last year, is changing accounting rules in that country, which would complicate any expansion, so it’s currently not a top priority, Mr. Cooperman says.

Global markets beyond North America are becoming more promising for FreshBooks, not least since the new USMCA trade agreement has yet to be ratified, and there is some resistance to ratification in all three nations.

“Our software has helped some 20 million people process billions of dollars. We have about 300 employees, most of them working out of the west end of Toronto, but we have millions of users all over the world,” Mr. Cooperman says. So why not broaden the horizons and reach across the globe?

This kind of global thinking makes sense in today’s volatile and turbulent trade environment, says Brad Robichaud, Director and Segment Head, Technology Sector at HSBC Bank Canada. It’s not that North America should be neglected or overlooked ─ and the U.S. is still often the first step in a company’s growth ─ it’s simply that there’s also opportunity for Canadian technology companies at all stages to expand into new or emerging regions, he explains.

“HSBC has clients that are very mature in their growth cycles and have trading relationships with more than 15 countries. Others are early in their growth stages and looking to foreign markets,” Mr. Robichaud says.

FreshBooks’ Mr. Cooperman agrees that while the U.S. market is still crucial, it’s important to be open to additional foreign markets too. While the company’s predominant market is the U.S., “FreshBooks has paying customers in more than 120 countries,” he says.

As a cloud-based tech company, FreshBooks is relatively insulated from the winds of change that are blowing through North American trade right now, Mr. Cooperman explains. Whether USMCA is ratified soon or not, “We don’t think it is going to have much of an impact at all for us,” he says. In fact, he says, “In fact, most macro-economic trends don’t have that much effect on us.” The company grew even after the 2008 recession, benefiting from the move of many laid-off workers to set up their own small businesses, which required accounting software.

Mr. Cooperman believes FreshBooks will benefit from emerging trends, such as the growth of small- and medium-sized businesses in developing markets, and the availability of tech talent from different countries. “Being able to access the global talent stream actually helps us a lot,” he says.

The time has been ripe for some time for Canadian companies to diversify trade beyond North America, says Glenn Hodgson, Senior Fellow at the Conference Board of Canada. More than a year ago, as USMCA was still being negotiated, he wrote that, “the uncertainty [about future North American trade] reinforces the advantages of the long-dreamed of diversification of Canadian trade and investment.”

Going global requires skill and expertise, Mr. Hodgson adds: “To diversify successfully, Canadian firms require a full understanding of how international business works today and where the opportunities lie.”

Tech’s expanding world

There are opportunities the world over, Mr. Robichaud says. “Some of the clear market opportunities for Canadian-based tech companies would be the U.K., Germany, Israel, India and China, all for various reasons,” he says.

“Israel and India, for example, are markets where there’s lots of tech talent, so companies look there for educated people who can help develop new technology. Places such as the U.K., Germany and China are where firms would look for sales growth.” Canada’s tech sector is well positioned to expand in global markets. It has a number of world-class technology clusters, including the Toronto-Waterloo corridor, Ottawa, Montreal, Vancouver and Calgary.

“To get to regional and global success you have to nail things down locally, and here in Canada tech companies are able to find the support and build the base at the early stages of their development that enables them to expand beyond our borders,” Mr. Robichaud says. “The support comes partly from different levels of government, but also from gathering a collection of advisors, such as their bank. In doing so, they can work with them to understand local insights and find solutions that can help them grow at the scale and pace required, as well as be connected with on-the-ground contacts to help navigate foreign markets.”

Mentoring is also quite common. “In Canada’s key tech hub cities, the founders who have had success and have done it before are eager to lend their experience to people starting out. There’s real sharing,” Mr. Robichaud says. “There’s also a mature financing system that helps support international expansion.”

The big challenge right now for Canadian tech companies is to make even bolder leaps into international markets, Mr. Robichaud adds.

“Expansion into the U.S. is very common given our close proximity and similar ways of doing business, but there is still incredible opportunity outside North America, especially with the advanced tech solutions that Canadian companies can offer, “ he says.

The tech sector and global trade

  • Canada has been making progress in diversifying its overall trade relationships. In 2017, 73 per cent of Canada’s goods and services exports went to to the U.S., down from 83 per cent in 2002.
  • The tech sector is key to this diversification because it’s relatively straightforward for tech to expand to new markets. “The business model [providing tech services that seldom require physical shipping] makes it easier for them to take their business global ” says Brad Robichaud of HSBC Bank Canada.
  • With little or no need for physical factory or warehouse space, tech has the advantage of needing less capital to open in a new market ─ helping Canadian companies export ideas and services such as cloud solutions, which don’t require bricks and mortar or many international staff.
  • Canadian tech firms that aspire to go global should make sure they professionalize their team: It takes people with knowledge of international markets and a group of trusted bankers, accountants and lawyers to help navigate international markets.
  • A team of global experts with experience in tech can help growing companies work through new or unforeseen issues ─ introducing firms to potential investors and international partners and providing a single platform for banking, foreign exchange and managing global relationships.

CONTENT PRODUCED BY THE GLOBE CONTENT STUDIO. THE GLOBE’S EDITORIAL DEPARTMENT WAS NOT INVOLVED.

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